BRUSSELS-Cyprus must raise 13 billion euros ($16.9 billion)
through additional taxes, the downsizing of its banking sector, and
the sale of its gold reserves and other state assets in order to
secure a multi-billion euro bailout from its international
partners, documents seen by the Wall Street Journal showed
Wednesday.
The euro zone and the International Monetary Fund has promised
to provide Cyprus with a EUR10 billion loan, and the additional
EUR13 billion will lift the country's total financing needs through
2016 to EUR23 billion, higher than the original projection of EUR17
billion.
The documents, which are drafts of the standard bailout
paperwork by the European Commission and the European Central Bank,
show the deep impact the rapid shrinking of Cyprus's banking sector
will have on its economy. According to a draft debt-sustainability
analysis, Cyprus is set to lose 8.7% of its economic output in 2013
and 3.9% in 2014, before returning to growth in 2015.
Its debt is expected to peak at 126.3% of gross domestic output
in 2015 and decline to about 104% of GDP by 2020.
A cycle of defaults on loans held by households and businesses
is a major risk to the country's program, the document warned,
adding that significant downside risks lay ahead for the tiny
Mediterranean country that became the fifth euro-zone country to
request financial assistance.
Nicosia will also seek to reschedule a EUR2.5 billion Russian
loan, now due in 2016, by extending repayment in five installments
starting in 2018 and lowering the interest rate, the document said.
It hopes to raise EUR400 million through selling excess gold
reserves.
The EU will provide EUR9 billion through its rescue fund and the
International Monetary fund will give another EUR 1 billion. The
country will use EUR2.5 billion of that to recapitalize its banks,
the document said, while the rest would cover fiscal needs and bond
redemptions. The document says cooperative banks in particular are
in need of recapitalization and some will merge as part of a
general restructuring process.
Cyprus saw its second-largest lender, Cyprus Popular Bank, wound
down, and its largest, Bank of Cyprus PCL (BOCY.CP), radically
restructured last month as part of the bailout agreement, a process
that the document said could yield up to EUR10.6 billion.
The process is being funded by uninsured savings. Most of the
deposits over EUR100,000 were wiped out in the case of CPB, while
BoC's uninsured depositors could lose up to 60% of their savings
over the guaranteed threshold. The country's third-largest lender,
Hellenic Bank PCL (HB.CP), also needs to be recapitalized but will
try to achieve this through private funding and without drawing on
bailout funds the document said.
Write to Matina Stevis at matina.stevis@dowjones.com and Andreas
Kissler at andrease.kissler@dowjones.com
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